What Affects Your Credit Score

Updated: January 09, 2024 Author:

Quick Answer: When you manage a credit account for years with no problems, your score goes up. If you miss a payment, your score drops. Credit reports can also show stability, i.e. being on the Electoral Roll at the same address for 3+ years. A history of consistent, timely repayments are preferable to lenders. 

    1. Hard inquiries

    Each time you “apply” for credit, your credit score takes a hit. There is an emphasis on “apply” because using a quotation search has no impact on your credit score at all. Applying for credit results in a hard search against your credit reports. Lenders see every hard search done on your credit report. A soft credit check is used to assess eligibility for certain products. Only you can see these. Lenders can’t. That’s the difference between a soft credit check vs a hard search credit check

    2. The types of credit accounts you manage successfully

    Of all the types of credit there are – an arranged overdraft, credit cards 

    loans (personal, secured, unsecured, short-term, long-term, fixed-rate or variable) 

    car finance, store accounts, etc. They all fall into two categories. Revolving or of installment credit. 

    Revolving credit is when you’re given an upper spend cap, borrow within the limit, and repay with interest. As you repay, your available credit is replenished. Installment credit is when you get a loan or product and repay the capital with interest. Once it’s repaid, it’s paid off. It’s not like revolving credit, whereby, what you repay becomes available to use again. Credit scores are higher when you have revolving and installment credit with on-time payments. 

    3. Financial associations / Joint accounts 

    Joint accounts, or opening accounts in joint names create a financial association on your credit report. When someone named on a joint application isn’t managing their finances well, it can have ramifications on your ability to access credit. When trying to fix a bad credit score, it’s important to go through your financial associations and look for people you were linked to in the past, but are no longer. When there’s no longer an active financial association, you can file a  Notice of Disassociation with each of the big three credit scoring companies

    4. Errors on credit reports

    Credit reporting agencies can only list what creditors notify them about. Administrative errors can have severe implications on your financial future. It shouldn’t happen, but it does! An investigation by Which? found multiple problems with credit report inaccuracies. Another research study of 4,000 adults by Royal London found that one in three of those surveyed had errors on their credit reports. The most common were name and address mistakes, credit agreements the consumer didn’t have, inaccurately recorded missed payments, and worryingly – defaults, (including CCJs). 

    An all too common mishap is moving home without submitting a final meter reading and forwarding address to gas and electricity providers. Without a new address, they can’t forward you a final bill, and without an accurate meter reading, they can’t issue an accurate final bill. When you move home, take a photo of the meter readings, and tell your provider when you’re moving out and how they can contact you in the future. Failing to do this can result in an invoice being raised that you don’t know about, which will later be reported as a late payment on your utility accounts. 

    5. Missing payments

    Credit reference agencies, and lenders, have their own credit scoring formulas. In one exposé, Experian revealed that a single missed payment on a credit card can ding your credit score by as much as 130 points. Callcredit deducts just 40 points on a missed payment, yet that could be less for habitual late payers. It’s more about “behavioural changes”. If your credit score shows you’re habitually bad at repaying on time, companies can factor that into their risk assessment. Once in a blue moon can’t be construed as predictable, therefore, if you routinely pay on time, then miss a payment, the impact on your credit score will be more severe because it’s a change to your usual behaviour. It should also be noted that missed payments remain on your credit report for six years from the date of entry, then they drop. The closer the entry gets to the six years, the less of an impact it has.

    6. Opening new credit card accounts

    Mature accounts that have been repaid on time and managed well help to improve your credit score. When you open a new credit card account, your credit score will drop. Firstly, because a hard pull needed to be done to assess your suitability and determine a credit limit. Secondly, until the new account ages, there’s no history attached to it regarding how it’s managed – Paid on time, balances settled in full, or partially. The best practice is to limit new accounts to every six months to give each a chance to build some credit reporting history. 

    7. Credit utilisation 

    This one can’t be understated as it has a huge impact on your ability to access credit at affordable rates. Credit scores get a boost when you keep your overall credit utilisation to below 30%. You will find your credit score taking a hit when you exceed 90% of your total available credit. With Experian, 50 points are added for obtaining (or building up to) a credit limit of £5,000, but a low credit limit of £250 can reduce your credit score by 50 points. 

    Worryingly, credit limits are not within your control. Lenders, such as Barclaycard, have come under fire for significantly reducing customers’ credit limits by over 80% with limited notice, thus, lowering credit scores. This is because it lowers the amount of credit being used against your total available credit. If you do find your credit card provider is unfairly reducing your credit limit, you can ask them to review your account. Usually, they require recent payslips and/or bank statements to set a realistic credit limit that they feel you can comfortably afford the repayments on. 

    8. Canceling accounts or having dormant accounts closed

    This ties into the above about your credit utilisation. If you clear off a credit card balance or pay off a loan, if you can, keep the account open. Naturally, when a loan is paid off in full, it can’t remain open. Credit cards though, can. It’s better for your credit utilisation to have a credit card that’s unused because the available credit lowers your credit utilisation. 

    The thing is, having dormant credit cards poses a risk of financial fraud. If you have an account that you aren’t actively monitoring, fraudulent transactions could go unnoticed. The FCA states that the most common reason for card providers to close dormant accounts is because of “concerns about financial crime”. To protect against your provider closing your account, put small transactions through, like paying a bill with the rarely used credit card just to keep it open. As an example, pay for your TV license or car insurance with a credit card instead of a debit card. 

    9. Electoral Roll information 

    Your credit report pulls in public information stored on the Electoral Roll. It can take a short time for your information to be updated so if you’ve recently moved home, you can find that the information on the Electoral Roll is of your old address. That can result in your credit score dropping because the information doesn’t match. It’s also possible that a spelling inaccuracy causes a mismatch. When you check your credit report (which you should), look at the Electoral Roll information to double-check the information is recorded accurately. If it’s not, you’ll need to submit a change of details to your local council’s Electoral Registration Office (ERO), then wait for the information to be updated on your credit report. Until your information matches, your credit score may be lower than it should be.